Legal view on Provident fund
PF is the retirement saving scheme available to all the salaried employees, is backed by the government on which fixed interest is paid. The employee provident fund is administered by the Employees Provident Fund Organization (EPFO), a statutory body developed by the government of India under the Ministry of Labor and Employment. It is formed to administer the mandatory contribution towards the PF scheme by both the employees and employers.
The law regarding provident funds was created in 1952. It is a form of beneficial provision created for the future of the industrial workers. A worker is entitled to receive this find when he retires and his dependents receive the funds in case of his death.
The object behind this act is to create a non-withdrwable fund for better future of the worker. It is a kind of social security measure for workmen and his dependents. This entire scheme of provident fund is administered by central and state board along with the regionally formed committees and a committee in chief inculcated by the central government.
This Act is divided into 20 sections and 4 schedules. This act is applicable to “every factory engaged in any industry specified in schedule I”. This act applies to establishments as notified in the gazette by the central government. The establishment should have employed 20 or more workers. Some workers will not come under this Act. They are Casual, or temporary workers can’t be considered as employees held in the case Bikar cold storage co. Ltd. V. Regional PF Commissioner. It does not exclude home workers. The test for applicability of the act :
I. Whether there is an establishment is a ‘factory’?
II. Whether 20 or more people are employed which is held in the case.
Features of EPF
1. It is for the benefit of both employees and their dependents.
2. A statutory duty is placed upon the employer under this act to deduct a certain percentage of the salary of the employee for the purpose of creating a provident fund. Moreover, the employer is required to contribute according to such percentage.
3. The employee whose salary is more than 15000 INR is entitled to get a provident fund.
NON-APPLICABILITY OF THE ACT
The Act does not apply to:
i.) Registered establishment under the co-operative society Act, 1912.
ii.) Any state-related co-operative society employed less than 50 people and worked without the aid of power. From the date on which the establishment is set up, where the establishment as:
iii.) Only 50 or more persons, after the expiry of 3 years.
iv.) Only 20 or more, but less than 50 people before the expiry of 5 years.
The CG can exempt any establishment on the ground of bad financial Position of the establishment.
Eligibility for getting EPF
Any person is eligible, who is employed:
i.) In the establishment on which the act applies.
ii.) Through a contractor.
iii.) Connection with work of establishment is eligible for the benefit of the Act.
SCHEMES under EPF
1. Employees provident fund scheme of 1952
Central government under Section 5 has unfettered power to frame any rule or scheme, along with the guiding principles. It was also stated in the case of R.P.F. Commr. V. L.R.F Works. This scheme does not apply retrospectively in a way that an employer be asked to pay his employees for the period before the notification, also he does not have any right to deduct the same for the future wages payable to the employee.  Under this scheme the funds are managed by a board created under section 5A of the act. Here it can happen retrospectively or prospectively.
2. Employees deposit linked insurance scheme, 1976
As the name suggests the scheme provides for the benefit of life insurance to the employees. It further provides for more incentive to be added to the provident fund of the employee. The benefit is somehow linked to the accumulated amount in the provident fund. Any member who is member to provident fund scheme is a direct beneficiary to this scheme as well.
3. Employee’s family pension scheme, 1995
For the benefit of providing family pension and life insurance benefits. Following benefit package is:
i.) Pension for life to the member, on retirement and invalidation
ii.) To the member of the family upon the death of the members.
iii.) Facility for capital return ( corpus accretion) on an option formula basis
iv.) Commutation if pension up to 1/3 Rd of pension amount.
v.) Retention of membership of the scheme till attaining the age of 68
The pension of retirement is also given under the new scheme, the eligibility is 10 years of a minimum of service and the beneficiary must be 58 years of age.
TAXABILITY OF PF
Deduction of PF can be claimed under section 80C of Income Tax Act while calculating Income Tax & when the employee withdraws the amount of PF & Interest after the retirement then, PF amount & Interest amount is not taxable. Pf can be accumulated withdrawn by the employee if he is unemployed for more than 2 months. 75% PF can be withdrawn after the employment of 1 month & rest 25% PF can be withdrawn after the unemployment of 2 months. It is on the choice of the employee after withdrawal of 75% amount that they should continue with the PF account or want to withdraw the whole amount.
TYPES OF PROVIDENT FUND
1. Statutory Provident Fund (SPF)
A provident fund registered under the Provident fund Act, 1925 is known as SPF. (also called a government provident fund). The employees who are engaged in employment with universities or any other educational institute which has affiliation to the university that is formed under the statute, or the government or any semi-government employee, etc.
2. Public Provident Fund (PPF)
PPF is covered under the Public Provident fund Act, 1968. Any member of the public whether employed or not can invest in PPF. The minimum Contribution in this fund is Rs. 500 & the Maximum amount is 1, 50,000 per year. The contributions made to the scheme along with the interests are repayable after 15 years unless extended. The rate of interest, at present, under the scheme is 8% per annum.
3. Recognized Provident Fund (RPF)
This Scheme is registered under the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. According to the Act, any person who employs 20 or more employees is under an obligation to register himself under this Act. Any person can register himself by their choice whether they have less than 20 employees.
4. Unrecognized Provident Fund (URPF)
A scheme started by the employer and the employees in an establishment, whether approved by the commissioner of Income Tax is called an unrecognized provident fund.
PF Contribution Rate
The contribution of Pf paid by employer & employee is 12% (basic pay + dearness allowance + retaining allowance) Equal contribution is paid by the employer & employee. The establishment which employs less than 20 people shall be restricted to contribute 10% for both employee & employer contribution.
It is voluntary for the employees who drew a salary of less than 15000 per month to become members of EPF. The employee who drew a salary of more than 15000per per month at the time of joining is not required to make a pf contribution. If they want to become member of EPF, then they become with the consent of the Employer & Assistant PF Commissioner.
The entire 12% of your contribution goes into your EPF account along with 3.67% (out of 12%) from your employer, while the balance 8.33% from your employer’s side is diverted to your EPS (Employee’s Pension Scheme) and the balance goes into your EPF account.
The breakup of EPF Contribution
I. 12% of the employee’s salary goes towards the EPF.
II. Whereas the employer’s contribution is divided as below:
1. 67% goes towards contribution for EPF
2. 33% goes towards contribution for EPS
3. 5% goes towards contribution for EDLI
4. 1% goes towards contribution for EPF administration charges
5. 01% goes towards contribution for EDLI administration charges
Therefore, the employer contribution is 13.61%. The premium and management charges are borne by the employer and the maximum limit is set at 0.5% of Rs.15, 000.
Universal Account Number (UAN)
It is a 12 digit number allotted to the employee who has contributed to EPF. It remains the same throughout the life of the employee. It does not change with the change of Job. It will help in easy transfer and withdrawals of claims. Along with the service of Online Passbook, SMS Service on each deposit of contribution & online KYC update can be provided on the basis of UAN. But before that UAN needs to be activated on the EPFO portal.
The member who is unable to withdraw PF for any reason can withdraw without the consent of the employer. They can submit FORM 19 for EPF (Employees Provident Fund) and FORM 10C for EPS (Employees’ Pension Scheme) with any of the following official’s attestation to the EPFO office in which their EPF account is maintained.
The article first published on Lexology.com and the same can be accessed here.